Course Corrections and Sunk Ships in the Wake of Dodd-Frank

The Dodd-Frank Act of 2010 has changed the way businesses market and deliver services to consumers in the financial services industry.  Companies now have to ensure that their products are not misleading or harmful to the financial marketplace, which is illegal.  Additionally, companies have to ensure that they are complying with the many new Consumer Financial Protection Bureau (CFPB) regulations.  Finally, there are serious repercussions for noncompliance.  The combination of these three points changes the way financial services companies approach the market.

The Dodd-Frank Act of 2010 defines misleading or harmful behaviors as Unfair Deceptive Abusive Acts or Practices (UDAAP).  UDAAPs can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace.  These behaviors are unlawful for any provider of consumer financial products and services or service provider.  CFPB Examiners are constantly reviewing financial products and services to identify risks to consumers from potential UDAAP.   In order to preempt sanctions, many companies are adapting by modifying their current processes to verify that their products are clear of UDAAP regulatory risk.

The CFPB brands itself a 21st century agency that helps consumer finance markets work by making more effective rules, by consistently and fairly enforcing those rules, and by empowering consumers to take more control of their economic lives.  It works to educate the public against abusive practices, enforce federal consumer financial laws, and analyze available information on consumers, financial service providers, and consumer financial markets.  For the consumer, the CFPB acts as a white knight.  Many financial services providers have a markedly different impression, however.

Each week the CFPB analyzes thousands of consumer complaints about financial products and services and forwards processed complaints to companies, giving them an opportunity to respond.   The CFPB makes this information publicly available on its website,providing consumers with information related to each complaint, such as:

  • Company name
  • Date and type of complaint (i.e. Unfair, Deceptive, Abusive)
  • Has the complaint received a response
  • Has the complaint been closed

Sharing this level of detail and the stories behind them create public accountability for financial services businesses..  Companies providing financial products or services want neither negative PR nor the scrutiny of the CFPB.  The penalties could be anywhere from heavy fines and consumer restitution, to shutting down operations. In December 2015, the CFPB took action against a small-dollar lender.  In this case, the small-dollar lender was ordered to refund $7.5 million to 93,000 consumers, pay $3 million in penalties, and are barred from future in-person debt collecting.  The CFPB also issued an industry-wide warning about in-person debt collecting at the debtor’s home or workplace.

The Dodd-Frank Act of 2010 has driven many companies selling products and services in the financial sector to change their approach.  In a sea of new regulations, it’s adapt or die for many financial services firms.  The CFPB has assumed the role of unbiased “Watch Dog” and will hold financial services businesses accountable for their misdeeds.  For consumers, it’s a new day.

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